Ignoring economics
By Thomas Sowell
Nov 15, 2005
Many people are blaming the riots in France on the high unemployment rate among
young Muslim men living in the ghettoes around Paris and elsewhere. Some are blaming
both the unemployment and the ghettoization on discrimination by the French.
Plausible as these explanations may sound, they ignore economics, among other things.
Let us go back a few generations in the United States. We need not speculate about racial
discrimination because it was openly spelled out in laws in the Southern states, where
most blacks lived, and was not unknown in the North.
Yet in the late 1940s, the unemployment rate among young black men was not only far
lower than it is today but was not very different from unemployment rates among young
whites the same ages. Every census from 1890 through 1930 showed labor force
participation rates for blacks to be as high as, or higher than, labor force participation
rates among whites.
Why are things so different today in the United States -- and so different among Muslim
young men in France? That is where economics comes in.
People who are less in demand -- whether because of inexperience, lower skills, or race - are just as employable at lower pay rates as people who are in high demand are at higher
pay rates. That is why blacks were just as able to find jobs as whites were, prior to the
decade of the 1930s and why a serious gap in unemployment between black teenagers
and white teenagers opened up only after 1950.
Prior to the decade of the 1930s, the wages of inexperienced and unskilled labor were
determined by supply and demand. There was no federal minimum wage law and labor
unions did not usually organize inexperienced and unskilled workers. That is why such
workers were able to find jobs, just like everyone else, even when these were black
workers in an era of open discrimination.
The first federal minimum wage law, the Davis-Bacon Act of 1931, was passed in part
explicitly to prevent black construction workers from "taking jobs" from white
construction workers by working for lower wages. It was not meant to protect black
workers from "exploitation" but to protect white workers from competition.
Even aside from a racial context, minimum wage laws in countries around the world
protect higher-paid workers from the competition of lower paid workers.
Often the higher-paid workers are older, more experienced, more skilled or more
unionized. But many goods and services can be produced with either many lower skilled
workers or fewer higher skilled workers, as well as with more capital and less labor or
vice-versa. Employers' choices depend on the relative costs.
The net economic effect of minimum wage laws is to make less skilled, less experienced,
or otherwise less desired workers more expensive -- thereby pricing many of them out of
jobs. Large disparities in unemployment rates between the young and the mature, the
skilled and the unskilled, and between different racial groups have been common
consequences of minimum wage laws.
That is their effect whether the particular minimum wage law applies to one sector of the
economy like the Davis-Bacon Act, to the whole economy like the Fair Labor Standards
Act of 1938 or to particular local communities like so-called "living wage" laws and
policies today.
The full effect of the Fair Labor Standards Act of 1938 was postponed by the wartime
inflation of the 1940s, which raised wages above the level specified in the Act.
Amendments to raise the minimum wage began in 1950 -- and so did the widening racial
differential in unemployment, especially for young black men.
Where minimum wage rates are higher and accompanied by other worker benefits
mandated by government to be paid by employers, as in France, unemployment rates are
higher and differences in unemployment rates between the young and the mature, or
between different racial or ethnic groups, are greater.
France's unemployment rate is roughly double that of the United States and people who
are unemployed stay unemployed much longer in France. Unemployment rates among
young Frenchmen are about 20 percent and among young Muslim men about 40 percent.
There is no free lunch, least of all for the disadvantaged.